Why managed accounts are the best antidote to market volatility
Russell Investments' Managed Portfolios have helped advisers run their business and serve clients with greater ease and efficiency. At no time has this been more apparent than during the continued bouts of market volatility of the past few years.
The recent banking crisis which ensnared U.S. banks, as well as European giant Credit Suisse, proved another example in which advisers could leverage the broad features offered by next-generation managed accounts to focus on client engagement and deliver optimal outcomes.
Indeed, the market-driven evolution of managed accounts means they now routinely deliver a powerful combination of business efficiencies, lower fees and transparent investment outcomes. Together, these factors have the potential to generate better outcomes for both advisers and their clients over time.
For Russell Investments, the keys to this process include the enhanced functionality of its managed portfolios together with the capability to transfer assets in specie without triggering capital gains tax. This enables enhanced oversight of a consolidated portfolio.
Consider the recent market volatility first triggered by the collapse of Silicon Valley Bank in March. Our multi-manager options tap into upwards of 75 global asset managers and could tilt in and out of markets at different points of time to provide active management without the need for an adviser to provide a statement of advice to clients if underlying funds were swapped. This provided advisers not just with best-of-breed investment prowess in a period when it was most needed, but also with the ability to concentrate on providing counsel to clients whose nerves were rattled by the market turbulence.
Moreover, Russell Investments’ Managed Portfolios provide several additional layers of diversification in their asset mix to provide a welcome cushion to clients in down markets and access to the best investment ideas throughout the cycle. This includes a Dynamic Core that offers access to institutional-quality investment managers and strategies (some unavailable to retail investors), passive exchange-traded funds which work to achieve both cost and benchmark-tracking targets, and a factor-based portfolio of select direct equities that is rebalanced on a semi-regular basis.
Over the past 12 months the Dynamic Core has helped to protect clients from rising inflation and interest rates and positioned their portfolios to take advantage of market opportunities as investor sentiment swung wildly.
Through the Dynamic Core, the use of put options has limited the downside during periods of market volatility. At the same time, alternative asset managers performed strongly to offset the lower returns produced in other sectors. This includes managers such as Metrics, who invest in areas such as Australian private debt and returned 6.65% to 31 March 2023.1
Further, the equity managers within that Dynamic Core have all moved up the quality curve over the past 12 months to adopt a more defensive position overall.
Advisers, of their own volition, can also use our managed account infrastructure to alter portfolios across an entire client book in a single step. In periods of heightened volatility, this capability ensures the holdings of each and every client can be adjusted in a considered manner and appropriate timeframe to address their personal objectives.
Of course, the transparency which gives clients full-look through of their holdings – security by security – is another feature that gives managed accounts an advantage over more costly legacy platforms by providing investors with a greater sense of control. Our regular reporting, such as trade notes, explain the logic underpinning each transaction and can also provide clients with the confidence their capital is managed in the most professional manner.
Add in the capacity to maximise a client’s tax position through the use of franking credits and the refund of excess credits, and the case for using managed accounts as the primary vehicle for portfolios becomes even stronger.
There is good reason that Australia’s managed account industry has been growing at a significant rate over the last few years. It has matured into an investment solution that allows advisers to deliver a transparent and cost-effective service to their clients, without compromising the quality of investments on offer or the returns that are generated.
In volatile markets, Russell Investments Managed Portfolios allow advisers to manage risks quickly on behalf of clients to alleviate their anxieties and protect their capital. But they are equally advantageous in more steady markets as they give advisers the critical tools that are necessary to capitalise on opportunities, while also running their own business in the most ideal manner.
1Source: Russell Investments